Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, October 20, 2023

AI Summary. The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.

Andrew Atkeson Jonathan Heathcote and Fabrizio Perri National Bureau of Economic Research
Date Posted:

.@Jonheathcote finds the deterioration of America’s net foreign asset position was driven by the overperformance of American equities held by overseas holders relative to the underperformance of American holdings overseas.

Why has the U.S. net foreign asset position fallen despite smaller deficits?

Core argument: The U.S. net foreign asset position fell by 60pp of GDP from 2007 into 2021 before rebounding somewhat in the first three quarters of 2022, even as U.S. current account deficits narrowed relative to the early 2000s.

In sharp contrast to this prior experience, from 2007 into 2021 the U.S. NFA position declined precipitously — by 60pp of U.S. GDP — before bouncing back somewhat in the first three quarters of 2022. And this has occurred despite the fact that U.S. current account deficits have narrowed relative to the early 2000s. We document that this unprecedented decline in the U.S. NFA position has been driven by a boom in the market valuation of the non-financial assets in U.S. corporations. Because foreigners’ gross holdings of equity in U.S. corporations have grown to be very large, this boom has mechanically increased the market value of U.S. liabilities to the rest of the world (henceforth, ROW). There has not been a similar boom in the valuation of corporations in the ROW over this time period, so U.S. residents have not enjoyed a similar revaluation of their gross foreign equity assets.

Takeaways by Macro Roundup® AI

  1. The U.S. net foreign asset position fell by 60pp of GDP from 2007 into 2021 before rebounding somewhat in the first three quarters of 2022, even as U.S. current account deficits narrowed relative to the early 2000s.
  2. The authors attribute the decline in the U.S. net foreign asset position to a boom in the market valuation of non-financial assets in U.S. corporations, which mechanically raised the market value of U.S. liabilities to the rest of the world given foreigners' very large gross equity holdings.
  3. Corporations in the rest of the world saw no comparable valuation boom over this period, so U.S. residents did not enjoy a similar revaluation of their gross foreign equity assets.

Related Articles:

  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth
  • The Case For Continued American Equity Exceptionalism — Continued outperformance by US stocks is plausible because the US is positioned to capture a sizeable share of productivity gains from technologies such as artificial intelligence, while a moderating global economy would weigh on more cyclically oriented markets abroad. One study attributes 39% of 15-year equity returns to domestic economic performance.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. The author argues the market-equilibrium real interest rate may be largely a social fact rather than something grounded in technology or stable human preferences: if people believe the neutral rate is higher and spend accordingly, it becomes higher regardless of whether the belief is well founded.

Brad DeLong Brad DeLong's Grasping Reality
Date Posted:

.@delong finds potential structural factors for higher r* unconvincing and proposes a social explanation, “if people permanently think r* is higher, it is, whether or not there is good reason for their thoughts.”

Is the neutral real interest rate a social fact rather than fundamentals?

Core argument: Optimism about the future is prompting spending and a belief that the neutral real rate r* is higher, and if people permanently think r* is higher, it is, whether or not there is good reason for that belief.

People are seeing something that is making them more optimistic about the future—and are spending. They think r* is higher, and if people permanently think r* is higher, it is, whether or not there is good reason for their thoughts. This is a very, very hard argument to refute, or even to think about. It is that the market-equilibrium interest rate is much more a social fact, without secure grounding in technologies, or in permanent or persistent factors affecting human utilities and behavior, at least as we neoclassical economists think of it. I, at least, can get no purchase on this argument. So I throw it over the wall to the sociologists and psychologists, and hope someone over there catches it.

Takeaways by Macro Roundup® AI

  1. Optimism about the future is prompting spending and a belief that the neutral real rate r* is higher, and if people permanently think r* is higher, it is, whether or not there is good reason for that belief.
  2. On this argument, the market-equilibrium interest rate is largely a social fact without secure grounding in technologies or in persistent factors affecting human utilities and behavior as neoclassical economists conceive them.
  3. DeLong says he can get no purchase on the argument that beliefs set r*, and throws it over the wall to sociologists and psychologists.

Related Articles:

  • What Is the Ten-Year Real Rate Going to Be? I: How We Got Here — A return of bond yields to their 2010s lows is unlikely, though the author expects some mean reversion, guessing roughly 0.5 percentage points. Demand for US Treasuries from wealthy emerging-market investors, sovereign wealth funds, and exchange reserves continues to scale with global wealth, so the author argues the safe-asset shortage holding down Treasury rates is not over.
  • Why We Should, but Won’t, Reduce the Budget Deficit — High interest rates will likely crowd out private investment and weaken long-term growth prospects. Because Social Security, health care, other safety-net programs, defense, and interest payments make up most federal spending, leaving only a small and already squeezed slice of nondefense discretionary spending, deficit reduction requires either cutting popular benefits or raising taxes.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. The Penn Wharton Budget Model projects federal debt rising from 98% of GDP to 189% by 2050, versus the Congressional Budget Office's 169%, and 208% if the real average borrowing rate runs 50 basis points above its 2.3% forecast. The authors argue a debt crisis has been avoided only because market participants assume a tax and spending correction is coming.

James Capretta American Enterprise Institute
Date Posted:

.@AEIecon cites Penn Wharton Budget Model’s analysis suggesting. “If and when the market consensus shifts toward assuming a [tax and spending] fix is not coming after all, a debt crisis would emerge in short order.”

.@AEIecon cites Penn Wharton Budget Model’s analysis suggesting. “If and when the market consensus shifts toward...

How high will federal debt climb without a tax and spending correction?

Core argument: The Penn Wharton Budget Model projects federal debt rising from 98% of GDP in 2023 to 189% in 2050, above the Congressional Budget Office's forecast of 169% of GDP that year.

The Penn Wharton Budget Model (PWBM) notes that the only reason a debt crisis has not already occurred is that market participants assume a tax and spending correction is coming at some point. The PWBM brief also outlines the effects of real interest rate increases on future debt projections. In the base case, the authors project federal debt rising from 98% of GDP in 2023 to 189% in 2050. The Congressional Budget Office (CBO) forecast shows debt reaching 169 percent of GDP that same year. If the real average interest rate for U.S. borrowing rises by 50 basis points above the PWBM forecast of 2.3%, then federal debt would climb to 208% of GDP in 2050.

Takeaways by Macro Roundup® AI

  1. The Penn Wharton Budget Model projects federal debt rising from 98% of GDP in 2023 to 189% in 2050, above the Congressional Budget Office's forecast of 169% of GDP that year.
  2. If the real average interest rate on U.S. borrowing rises 50 basis points above the Penn Wharton Budget Model's forecast of 2.3%, federal debt would reach 208% of GDP in 2050.
  3. The Penn Wharton Budget Model argues that a debt crisis has not yet occurred only because market participants assume a tax and spending correction is coming at some point.

Related Articles:

  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • Interest Expense: A Bigger Impact on Deficits than Debt — The US is running a primary deficit—excluding interest costs—much larger than its historical norm, at a point in the business cycle when deficits would normally be smaller than usual. The average interest rate on federal debt is projected to remain at or below the rate of nominal GDP growth over the next decade.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Higher borrowing costs are weighing on corporate earnings and interest coverage, with bankruptcy filings rising and default rates projected to keep rising, particularly among middle-market companies. Lagged effects of monetary policy are slowing consumer credit growth, with auto and credit card delinquencies rising and bank lending standards tightening.

Torsten Sløk, Jyoti Agarwal, and Rajvi Shah Apollo
Date Posted:

Torsten Sløk @apolloglobal argues a default cycle is underway.

Are higher borrowing costs pushing corporate defaults and consumer delinquencies higher?

Core argument: A default cycle has begun with bankruptcy filings rising, and default rates are projected to keep climbing over the coming quarters, affecting middle market companies in particular, even as credit spreads remain tight.

Up in quality: With the Fed keeping rates higher for longer, higher debt costs will continue to weigh on earnings and interest coverage ratios over the coming quarters, and both IG and HY companies will experience higher refinancing costs. Large cap: A default cycle has started with bankruptcy filings rising, and default rates will continue to rise over the coming quarters, impacting in particular middle market companies. Lend to firms with low leverage and high interest coverage ratios: Lagged effects of monetary policy are slowing consumer credit growth with auto and credit card delinquencies rising and bank lending conditions tightening, leading to a significant slowing of loan growth impacting consumers and firms with weak balance sheets.

Takeaways by Macro Roundup® AI

  1. A default cycle has begun with bankruptcy filings rising, and default rates are projected to keep climbing over the coming quarters, affecting middle market companies in particular, even as credit spreads remain tight.
  2. With the Federal Reserve keeping rates higher for longer, higher debt costs will continue to weigh on earnings and interest coverage ratios, and both investment grade and high yield companies will face higher refinancing costs.
  3. Lagged effects of monetary policy are slowing consumer credit growth, with auto and credit card delinquencies rising and bank lending conditions tightening, producing a significant slowing of loan growth that affects consumers and firms with weak balance sheets.

Related Articles:

  • Where Are All the Defaults? — One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.
  • Rates Are Up. We’re Just Starting to Feel the Heat — U.S. companies have $600bn in corporate debt maturing this year, a total Goldman Sachs data show rising to more than $1tn a year from 2025 through 2028. Those debt loads, combined with higher financing costs, may cut into corporate profits, investor returns, innovation spending, and hiring, with some analysts expecting credit-rating downgrades.
  • How Is the Corporate Bond Market Functioning as Interest Rates Increase? — The Investment Grade Corporate Bond Market Distress Index has risen only modestly during the current interest-rate tightening cycle and has recently trended sideways, with its peak not substantially above the level reached during the earlier 2015 tightening cycle.

AI Summary. A congressionally mandated Pentagon survey estimated China's stockpile of operational nuclear warheads reached 500 and projected it would likely exceed 1,000 by 2030, while the US has 1,550 deployed strategic warheads permitted under the New Start arms control treaty. Analysts warn conventionally armed intercontinental missiles could destabilize the military balance.

Demetri Sevastopulo Financial Times
Date Posted:

According to a new Pentagon report, China is accelerating the expansion of its nuclear arsenal and likely developing conventional ICBMs to target major US population centers.

According to a new Pentagon report, China is accelerating the expansion of its nuclear arsenal and likely developing...

Is China expanding its nuclear arsenal faster than expected?

Core argument: China's stockpile of operational nuclear warheads reached 500 by May 2023, putting it on track to exceed projections, according to the annual Pentagon survey of Chinese military capabilities mandated by Congress.

An annual survey of Chinese military capabilities mandated by Congress said its stockpile of operational nuclear warheads reached 500 by May 2023, putting it on track to exceed projections. It forecast that China would likely have more than 1,000 operational nuclear warheads by 2030. The US has 1,550 deployed strategic nuclear warheads, as permitted under the New Start arms control treaty. Dennis Wilder, a former top CIA China expert, said the warning about conventional ICBMs was very concerning because they could destabilise the military balance and complicate the situation for military planners. “China could, in a US-China crisis, for the first time threaten strikes against major US population centers without having to cross the nuclear threshold, which risks a massive US nuclear barrage in response.”

Takeaways by Macro Roundup® AI

  1. China's stockpile of operational nuclear warheads reached 500 by May 2023, putting it on track to exceed projections, according to the annual Pentagon survey of Chinese military capabilities mandated by Congress.
  2. The Pentagon survey forecasts that China will likely have more than 1,000 operational nuclear warheads by 2030, while the US has 1,550 deployed strategic warheads, as permitted under the New Start arms control treaty.
  3. Dennis Wilder, a former top CIA China expert, called the warning about conventional ICBMs very concerning, saying China could in a crisis threaten strikes on major US population centers without crossing the nuclear threshold.

Related Articles:

  • Japan Raises Military Spending To Counter China With More Missiles and Ships — Japan's defense budget rises 13% over the prior fiscal year's planned spending, part of a five-year, ¥43tn plan to lift military spending to roughly 2% of gross domestic product, versus the roughly 1% cap maintained since the 1960s. Purchases include Aegis-equipped destroyers and Tomahawk cruise missiles, with the largest share directed at the Self-Defense Forces' sustainability and resilience.
  • Pentagon Plan to Buy Thousands of Drones Faces Looming Snags — The US Department of Defense aims to buy thousands of low-cost drones within as little as 18 months and up to 2,000 larger uncrewed jets, while one of its primary drone suppliers produced 38 aircraft last year. Booming commercial aerospace demand has left shortages of skilled labor, raw materials, and parts such as advanced electronics and fasteners.
  • US Nuclear Submarine Weak Spot In Bubble Trail: Chinese Scientists — Researchers at the Chinese Academy of Sciences calculate that the extremely low frequency magnetic signal generated by the bubble trail of an advanced submarine could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude. The authors argue this offers a new approach to detecting and tracking submarines from long distances.

Monday, October 23, 2023

AI Summary. The authors estimate that the 2017 US corporate tax cut raised domestic investment at firms with the average tax change by about 20% relative to firms with no tax change, with long-run domestic and total capital up roughly 6% and 9%. They find dynamic revenue feedback under 2% of baseline corporate revenue.

Gabriel Chodorow-Reich, Matthew Smith, Owen Zidar and Eric Zwick National Bureau of Economic Research
Date Posted:
Is Database:
Database

Firms that benefited from the corporate tax cuts in the 2017 Tax Cuts and Jobs Act responded with increased investment relative to firms that were not impacted, according to @gchodorowreich @omzidar Eric Zwick and Matthew Smith.

How much did corporate tax cuts raise investment and revenue?

Core argument: The authors estimate that the 2017 Tax Cuts and Jobs Act raised domestic investment by roughly 20% for firms experiencing the mean tax change, relative to firms with no tax change.

This paper combines administrative tax data and a model of global investment behavior to evaluate the investment and firm valuation effects of the Tax Cuts and Jobs Act (TCJA) of 2017. We have five main findings. First, the TCJA caused domestic investment of firms with the mean tax change to increase by roughly 20% relative to firms experiencing no tax change. Second, the TCJA created large incentives for some U.S. multinationals to increase foreign capital, which rose substantially following the law change. Third, domestic investment also increases in response to foreign incentives, indicating complementarity between domestic and foreign capital in production. Fourth, the general equilibrium long-run effects of the TCJA on the domestic and total capital of U.S. firms are around 6% and 9%, respectively. Finally, in our model, the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2% of baseline corporate revenue, as investment growth causes both higher labor tax revenues from wage growth and offsetting corporate revenue declines from more depreciation deductions. Consequently, the fall in total corporate tax revenue from the tax cut is close to the static effect.

Takeaways by Macro Roundup® AI

  1. The authors estimate that the 2017 Tax Cuts and Jobs Act raised domestic investment by roughly 20% for firms experiencing the mean tax change, relative to firms with no tax change.
  2. The TCJA created incentives for some U.S. multinationals to expand foreign capital, which rose substantially after the law, and domestic investment also increased in response to foreign incentives, indicating complementarity between domestic and foreign capital.
  3. In the authors' model, long-run general equilibrium effects of the TCJA on domestic and total capital of U.S. firms are around 6% and 9%, while dynamic labor and corporate tax revenue feedback over the first 10 years is under 2% of baseline corporate revenue.

Related Articles:

  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • Is the Tax Cut Paying For Itself? By a Mile — My Wall Street Journal Op-Ed: Is the Tax Cut Paying For Itself? By a Mile.

AI Summary. A larger share of Treasury financing done through short-term bills rather than longer-dated coupon securities would likely ease upward pressure on long-term yields, though the effect may be modest. With the deficit estimated near $1.5t, shifting toward bills would let the Treasury hold coupon sizes steady or trim them, reducing near-term supply.

Joseph Wang Fed Guy Blog
Date Posted:

According to @FedGuy12 Treasury will likely raise the share of bill issuance to support the market. However, this will only have a short-term impact on the supply/demand mismatch driving yields.

Does more short-term bill issuance ease pressure on long-term yields?

Core argument: With the 2024 deficit estimated at roughly $1.5t, Treasury has guided toward raising coupon auction sizes over the next few quarters to meet its financing needs.

A potential surge in net bill issuance will likely ease upward pressure on longer dated yields, but the impact may not be significant. The 2024 deficit is estimated to be around $1.5t and Treasury has guided towards raising coupon sizes over the next few quarters to meet its financing needs. A willingness to raise the share of bill issuance means Treasury could at the minimum maintain coupon sizes, and instead issue more bills. Treasury could even be more aggressive and slightly reduce coupon issuance. In effect, this would lower the expected issuance of coupon securities for a period of time. Some prospective investors will look past this as a temporary measure, but at the end of the day there will be less immediate supply for the market to digest.

Takeaways by Macro Roundup® AI

  1. With the 2024 deficit estimated at roughly $1.5t, Treasury has guided toward raising coupon auction sizes over the next few quarters to meet its financing needs.
  2. A greater willingness to lean on bill issuance would let Treasury hold coupon sizes flat, or even trim them slightly, lowering expected coupon supply for a period of time.
  3. A surge in net bill issuance would likely ease upward pressure on longer dated yields by leaving less immediate supply for the market to digest, though the impact may not be significant.

Related Articles:

  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • The NY Fed Trading Desk’s Time to Shine? — Short-term interest rates are set at the discretion of the Federal Reserve's policy committee rather than by markets, and the Fed also tries to influence longer-term rates, sometimes by buying or selling bonds outright. The author argues central banks could conduct such trades directly instead of paying intermediaries, as the Bank of Japan does.

AI Summary. Bloomberg Economics estimates that the inflation-adjusted natural rate of interest on 10-year US government notes fell from 5% in 1980 to under 2%, and projects it will rise about a percentage point from a trough of 1.7% to 2.7% in the 2030s, implying nominal 10-year yields of 4.5%–5%.

Jamie Rush, Martin Ademmer, Maeva Cousin, Tom Orlik, and Rich Miller Bloomberg
Date Posted:

Bloomberg Economics estimates that higher government debt levels, higher rates of investment driven by decarbonization demands, and faster growth will likely lift the natural rate to 4%, which implies a nominal 10-year yield of ~ 6%.

Will the natural rate of interest rise over the coming decade?

Core argument: Bloomberg Economics estimates the inflation-adjusted natural rate of interest on 10-year US Treasury notes fell from 5% in 1980 to a little under 2% over the past decade.

Bloomberg’s team of economists estimates that, adjusted for inflation, the natural rate of interest for 10-year US government notes fell from 5% in 1980 to a little less than 2% over the past decade. How much higher will the natural rate go? Bloomberg Economics’ model shows a rise of about a percentage point, from a trough of 1.7% in the mid-2010s to 2.7% in the 2030s. In nominal terms, that means 10-year Treasury yields could settle somewhere between 4.5% and 5%. And the risks are skewed toward even higher borrowing costs than that baseline suggests. According to Bloomberg Economics estimates, the combined impact of persistently high levels of government borrowing, more spending to fight climate change and faster growth would lift the natural rate to 4%, translating to a nominal 10-year bond yield in the region of 6%.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics estimates the inflation-adjusted natural rate of interest on 10-year US Treasury notes fell from 5% in 1980 to a little under 2% over the past decade.
  2. Bloomberg Economics' model shows the natural rate rising about a percentage point, from a trough of 1.7% in the mid-2010s to 2.7% in the 2030s, implying nominal 10-year Treasury yields of 4.5% to 5%.
  3. Bloomberg Economics estimates that persistently high government borrowing, more spending to fight climate change, and faster growth combined would lift the natural rate to 4%, translating into a nominal 10-year bond yield in the region of 6%.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies — Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.
  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.

AI Summary. The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.

Daan Struyven Goldman Sachs
Date Posted:

The United States is the world’s marginal oil producer and has driven all of the growth in global oil supply over the past decade. @GoldmanSachs

How much does US shale output still respond to higher oil prices?

Core argument: Analysts estimate that a 10% oil price increase raises US liquids supply by about 1%, or 200kb/d, with the elasticity having fallen over time and being much smaller for public producers than for private ones.

We find that the elasticity of US supply has fallen over time, and is much smaller for public producers than for privates. We estimate that a 10% oil price increase boosts US liquids supply by around 1% or 200kb/d. Consolidation is likely to further depress the supply elasticity as inelastic public producers gain market share, and efficiency gains push the US lower on the cost curve. We see two takeaways. First, the trends in the Permian and ongoing capital discipline support our forecasts that US liquids supply growth slows in 2024 to 0.6mb/d (vs.1.4mb/d in 2023), and that Brent reaches $100/bbl in June. Second, our estimates imply that the US supply response to higher prices—caused by any geopolitical supply shock—would offset only about 20-25% of the initial shock, which underscores OPEC’s key role in balancing the market. While core OPEC countries currently have nearly 4mb/d of spare capacity, physical or political barriers to deploying spare capacity are the key upside risk to oil prices.

Takeaways by Macro Roundup® AI

  1. Analysts estimate that a 10% oil price increase raises US liquids supply by about 1%, or 200kb/d, with the elasticity having fallen over time and being much smaller for public producers than for private ones.
  2. Permian trends and ongoing capital discipline support forecasts that US liquids supply growth slows to 0.6mb/d in 2024 from 1.4mb/d in 2023, and that Brent reaches $100/bbl in June.
  3. The estimated US supply response to higher prices would offset only about 20-25% of an initial geopolitical supply shock, underscoring OPEC's role in balancing the market, with core OPEC countries holding nearly 4mb/d of spare capacity.

Related Articles:

  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.
  • Monday Chart — US energy exports of $420bn accounted for 13.5% of total US exports of $3,108bn. Energy's $143bn increase comprised more than 25% of the $541bn rise in total US exports.
  • Portfolio Nuclear — The US is in its fifth year of net energy independence, with domestic oil and gas production at all-time highs across four consecutive administrations. Wind and solar now supply 15% of the grid, allowing more coal and liquefied natural gas to be exported.

AI Summary. Travel speeds in the U.S. have largely stopped improving over the past half-century: scheduled flight time between Los Angeles and New York has lengthened by about 30 minutes, and the fastest Washington–New York train trip takes roughly 20 minutes longer than earlier nonstop service. Academic research finds commuting makes people more unhappy than almost any other daily activity.

David Leonhardt New York Times
Date Posted:

Citing increasing travel times for air and rail travel, @DLeonhardt makes the case the American private and public sector is underinvesting.

Citing increasing travel times for air and rail travel, @DLeonhardt makes the case the American private and public sector is...

Has travel speed in the U.S. stopped improving?

Core argument: Scheduled flight time between Los Angeles and New York has lengthened by about 30 minutes since 1959, one of several U.S. travel areas where progress has largely stopped over the past half-century.

The speed at which people can get from one place to another is one of the most basic measures of a society’s sophistication. It affects economic productivity and human happiness; academic research has found that commuting makes people more unhappy than almost any other daily activity. Yet in one area of U.S. travel after another, progress has largely stopped over the past half-century. The scheduled flight time between Los Angeles and New York has become about 30 minutes longer [since 1959.] In 1969, Metroliner trains made two-and-a-half-hour nonstop trips between Washington and New York. Today, there are no nonstop trains on that route, and the fastest trip, on Acela trains, takes about 20 minutes longer than the Metroliner once did.

Takeaways by Macro Roundup® AI

  1. Scheduled flight time between Los Angeles and New York has lengthened by about 30 minutes since 1959, one of several U.S. travel areas where progress has largely stopped over the past half-century.
  2. Metroliner trains ran nonstop between Washington and New York in two-and-a-half hours in 1969, while today no nonstop trains serve that route and the fastest Acela trip takes about 20 minutes longer.
  3. Travel speed affects economic productivity and human happiness, and academic research has found that commuting makes people more unhappy than almost any other daily activity.

Related Articles:

  • Leonhardt On Investment — US chip and green-energy subsidies replicate what the country already does at far greater cost rather than making anything cheaper, faster, or better. The core problem with US public investment is waste rather than insufficient funding, as seen in $4bn-per-mile subways and a California high-speed rail project exceeding $100bn with no track laid.
  • US Capital is Depreciating Faster — US gross investment has run about 20-25% of GDP over time, but net investment has fallen from roughly 10% of GDP in the 1950s-1980s to about 5% recently. About three-quarters of gross investment now replaces capital that has worn out, rather than adding to the capital stock.
  • Capital Allocation — Capital spending minus depreciation as a share of sales peaked at 6.9% and bottomed at 0.5%, averaging 1.8% over the past decade. Depreciation is an imperfect proxy for maintenance capital spending because rising prices make replacement costs exceed historical-cost depreciation, and technological obsolescence means depreciation can overstate an asset's useful life.

AI Summary. US chip and green-energy subsidies replicate what the country already does at far greater cost rather than making anything cheaper, faster, or better. The core problem with US public investment is waste rather than insufficient funding, as seen in $4bn-per-mile subways and a California high-speed rail project exceeding $100bn with no track laid.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane writes that @DLeonhardt is confusing public underinvestment for declining productivity, which is largely driven in his view by government regulation and rent-seeking unions.

.@JohnHCochrane writes that @DLeonhardt is confusing public underinvestment for declining productivity, which is largely...

Is the problem with US public investment waste rather than funding?

Core argument: California's high-speed rail has consumed 15 years and more than $100 billion without a mile of track laid, which Cochrane calls the poster child for what is wrong with US public investment.

US chips and green energy subsidies don't make anything cheaper, faster, or better. They just do what we already do in the US, at vastly greater cost, and in a different way. Even if electric cars did save carbon, they would not get you to the airport any faster. The problem with US public investment is not just lack of money. It is that the money we do spend goes down ratholes, so not spending is wise. Public teacher unions that deliver generations of children, mostly already disadvantaged, who cannot read or count. $4 billion per mile subways. Leonhardt mentions other countries' success with high-speed trains, without mentioning the poster child for all that is wrong with US public investment: the California railroad. 15 years and counting, $100+ billion dollars, not a mile of track laid yet. If it were not so perfectly obvious to voters that money will be wasted, they might support a lot more investment.

Takeaways by Macro Roundup® AI

  1. California's high-speed rail has consumed 15 years and more than $100 billion without a mile of track laid, which Cochrane calls the poster child for what is wrong with US public investment.
  2. US chips and green energy subsidies do not make anything cheaper, faster, or better, in Cochrane's view, but replicate what the US already does at vastly greater cost.
  3. Cochrane argues the core problem with US public investment is not lack of money but that spending goes down ratholes, citing public teacher unions delivering children who cannot read or count and $4 billion-per-mile subways.

Related Articles:

  • Longer Commutes, Shorter Lives: The Costs of Not Investing in America — Travel speeds in the U.S. have largely stopped improving over the past half-century: scheduled flight time between Los Angeles and New York has lengthened by about 30 minutes, and the fastest Washington–New York train trip takes roughly 20 minutes longer than earlier nonstop service. Academic research finds commuting makes people more unhappy than almost any other daily activity.
  • US Capital is Depreciating Faster — US gross investment has run about 20-25% of GDP over time, but net investment has fallen from roughly 10% of GDP in the 1950s-1980s to about 5% recently. About three-quarters of gross investment now replaces capital that has worn out, rather than adding to the capital stock.
  • Capital Allocation — Capital spending minus depreciation as a share of sales peaked at 6.9% and bottomed at 0.5%, averaging 1.8% over the past decade. Depreciation is an imperfect proxy for maintenance capital spending because rising prices make replacement costs exceed historical-cost depreciation, and technological obsolescence means depreciation can overstate an asset's useful life.

AI Summary. An estimated 900m people face hunger or severe food insecurity daily, and more than 1.4bn others lack vital micronutrients needed for health and life expectancy. The prevalence of moderate to severe food insecurity globally was estimated at 29.6%, up from 22.7% six years earlier, with increases in both Africa and Asia.

Vanessa Cook and Taylor Bowley Bank of America
Date Posted:

According to @BankofAmerica 900mm people, largely in Sub-Saharan Africa, face daily hunger in 2022, up from the pre-pandemic period.

Is global food insecurity rising?

Core argument: Global prevalence of moderate to severe food insecurity was estimated at 29.6% in 2022, up from 22.7% in 2016, with an estimated 900 million people facing hunger or severe food insecurity daily.

An estimated 900 million people around the globe face hunger or severe food insecurity daily. More than 1.4 billion additional people lack vital micronutrients, affecting their health and life expectancy. Globally, the prevalence of moderate to severe food insecurity was estimated at 29.6% in 2022, up from 22.7% in 2016. In Africa, the number of severely and moderately food insecure people rose almost 25% from 695 million in 2019 to 868 million in 2022. In Asia, the same group went from 982 million in 2019 to over 1.1 billion in 2022. The Food & Agriculture Organization of the United Nations (FAO) estimates that the pandemic increased incidence of hunger and lack of access to adequate food by over 300 million people from 2019 to 2020 alone.

Takeaways by Macro Roundup® AI

  1. Global prevalence of moderate to severe food insecurity was estimated at 29.6% in 2022, up from 22.7% in 2016, with an estimated 900 million people facing hunger or severe food insecurity daily.
  2. Africa's moderately and severely food insecure population rose almost 25%, from 695 million in 2019 to 868 million in 2022, while Asia's rose from 982 million to over 1.1 billion over the same period.
  3. The Food & Agriculture Organization of the United Nations estimates the pandemic increased the incidence of hunger and lack of access to adequate food by over 300 million people from 2019 to 2020 alone.

Related Articles:

  • Feeding the Future: How Climate and Agriculture Intersect — Domestic demand for major US crops and livestock is projected to grow 2–10% over the next decade, with rising meat consumption—requiring over 4x the acreage of a vegetarian diet—adding pressure on feed crops. With global population projected to rise by about 2bn by 2050, agriculture must produce more food in 30–40 years than in the past 8,000.
  • China Ups Food Security Drive, Plans To Grow 90 Percent Of Its Grain By 2032, Warning For US And Thai Farmers — China's Ministry of Agriculture and Rural Affairs plans to raise domestic self-sufficiency in grain — mainly rice, wheat, corn and soybeans — to 88.4% within a decade from 82%. The plan would cut grain imports to 122m metric tonnes from 146.9m.
  • Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants — Human Rights Watch alleges in a 73-page report that Saudi border forces killed hundreds of Ethiopian migrants attempting to cross into the kingdom from Yemen, firing explosive weapons at them and in some cases asking migrants which limb they would prefer to be shot. Saudi Arabia hosts hundreds of thousands of Ethiopian workers.

AI Summary. A reprinted Chinese book about the last Ming dynasty emperor — who purged senior officials, mismanaged his realm and hanged himself as rebels closed in — has been pulled from shelves in China, with online searches for it censored. Publishers say removal of an already state-vetted reprint is uncommon.

Joe Leahy Financial Times
Date Posted:

A reprint of a history of “an emperor who ran his realm into the ground before committing suicide nearly 400 years ago” has disappeared from bookstores in China and is being censored on social media like Weibo.

A reprint of a history of “an emperor who ran his realm into the ground before committing suicide nearly 400 years ago” has...

Why would censors pull a state-approved book about a failed emperor?

Core argument: "Chongzhen: the Diligent Emperor of a Failed Dynasty," republished in China, has disappeared from bookshelves and online searches for it have been censored; it recounts how the last Ming emperor purged senior officials and mismanaged his realm.

A Chinese reprint of a book about an emperor who ran his realm into the ground before committing suicide nearly 400 years ago has abruptly disappeared from book shelves in China and searches for it have been censored online. The Book Chongzhen: the Diligent Emperor of a Failed Dynasty, republished last month, recounts how the last emperor of the 1368-1644 Ming dynasty purged senior officials and mismanaged his kingdom before finally hanging himself on a tree outside the Forbidden City as rebels closed in on Beijing. The blurb on the book’s cover declares that the harder Chongzhen worked, the faster he brought about the collapse of the empire. “A series of foolish measures [and] every step a mistake, the more diligent [he was] the faster the downfall,” it says. The disappearance of a reprint of a previously published book, which would have been vetted by state propagandists before publication, is not common, publishers say.

Takeaways by Macro Roundup® AI

  1. "Chongzhen: the Diligent Emperor of a Failed Dynasty," republished in China, has disappeared from bookshelves and online searches for it have been censored; it recounts how the last Ming emperor purged senior officials and mismanaged his realm.
  2. The book's cover blurb says of Chongzhen, who hanged himself on a tree outside the Forbidden City as rebels closed in on Beijing, "a series of foolish measures [and] every step a mistake, the more diligent [he was] the faster the downfall.".
  3. Publishers say the disappearance of a reprint is not common, since a previously published book would have been vetted by state propagandists before publication.

Related Articles:

  • As China Ramps Up Scrutiny of Culture, the Show Does Not Go On — More than a dozen performances across China, including stand-up comedy, jazz and a touring Japanese choral group, were abruptly cancelled with virtually no explanation, after authorities fined a Chinese comedy studio around $2m over a joke deemed insulting to the military. Performers must submit scripts or set lists for vetting.
  • China’s Defeated Youth — Urban Chinese unemployment among those aged 16 to 24 has run above 20%, about double the pre-pandemic level for that age group, with over 70% of unemployed youth in one year calculated to be graduates. Sentiment analysis of social media indicates the mood of young Chinese is growing darker.
  • The Root of China’s Growing Youth Unemployment Crisis — China's government has long encouraged university enrollment, raising higher-education student numbers from 22m to 383m and expanding graduate-school capacity, with master's candidates up 25% in one year. The author argues that boosting graduate numbers while restricting the services sector and subsidizing construction is bad economics and worse social policy.

AI Summary. An analysis of North Atlantic tropical cyclones finds mean maximum intensification rates up to 28.7% greater in 2001–2020 than in 1971–1990. The number of storms strengthening from a Category 1 hurricane or weaker into a major hurricane within 36 hours has more than doubled between those periods.

Andra Garner Nature Scientific Reports
Date Posted:

According to new @Nature research, the rate at which tropical cyclones have grown into hurricanes within 36 hours has doubled in the modern era (2001-2020) relative to the 1971–1990 period.

Are Atlantic hurricanes intensifying faster than they did decades ago?

Core argument: Mean maximum intensification rates for North Atlantic tropical cyclones were up to 28.7% greater in 2001–2020 than in 1971–1990, based on observed maximum changes in wind speed from 1971 to 2020.

An analysis of observed maximum changes in wind speed for Atlantic Tropical Cyclones (TCs) from 1971 to 2020 indicates that TC intensification rates have already changed as anthropogenic greenhouse gas emissions have warmed the planet and oceans. Mean maximum TC intensification rates are up to 28.7% greater in the modern era (2001–2020) compared to the historical era (1971–1990). In the modern era, it is about as likely for TCs to intensify by at least 50 kts in 24 h, and more likely for TCs to intensify by at least 20 kts within 24 h than it was for TCs to intensify by these amounts in 36 h in the historical era. Finally, the number of TCs that intensify from a Category 1 hurricane (or weaker) into a major hurricane within 36 h has more than doubled in the modern era relative to the historical era.

Takeaways by Macro Roundup® AI

  1. Mean maximum intensification rates for North Atlantic tropical cyclones were up to 28.7% greater in 2001–2020 than in 1971–1990, based on observed maximum changes in wind speed from 1971 to 2020.
  2. The number of Atlantic tropical cyclones intensifying from Category 1 or weaker into a major hurricane within 36 hours has more than doubled in 2001–2020 relative to 1971–1990.
  3. In 2001–2020, Atlantic tropical cyclones are about as likely to intensify by at least 50 kts in 24 hours, and more likely to intensify by at least 20 kts in 24 hours, as they were in 36 hours during 1971–1990.

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  • Gulf Coast Temperatures Surge to Highest Levels Ever Observed — Sea surface temperatures in the Gulf of Mexico have warmed more than 3 degrees above the norm for the date, with temperatures near 88°F common down to depths of 165 feet. Though the Gulf as a whole has cooled slightly from record levels, it remains near all-time highs.
  • Why California and Florida Have Become Almost Uninsurable — Wildfires in California and hurricanes in Florida have generated large volumes of insurance claims, while higher housing prices and construction and repair costs have made each claim more expensive. Insurers have also faced costlier reinsurance, with worldwide average reinsurance rates up about a quarter in one year and another third the next, according to reinsurance broker Howden Tiger.